The Future of Block: What to Expect in Five Years

Block (NYSE: SQ) is gradually establishing itself in the financial services space, yet its stock performance has not been as impressive. Over the past five years, Block's shares have increased by only 32% as of November 26. In comparison, the S&P 500 index has delivered a total return of 107%, more than doubling investors’ initial investments.

Looking ahead, the big question is: where will Block stand in another five years? Can the company finally provide better returns for its investors?

Enhancing Integration

Block's leadership is actively working to improve the connection between its two main services: Square and Cash App. This initiative aims to create a more robust and self-sufficient payment ecosystem that does not heavily rely on established networks like Visa and Mastercard.

The ideal scenario for Block occurs when a customer using Cash App makes a purchase from a merchant that uses Square. Payments for these transactions could be made through Cash App Pay, which directly debits funds from the user's bank account. Other options include the Cash App Card or Afterpay, which lets consumers buy now and pay later.

In these transactions, Block stands to gain all or most of the transaction fees, which is crucial for a growing fintech company aiming to disrupt traditional payment networks. As of September 30, Block had 57 million monthly Cash App users and 24 million Cash App Card holders. Additionally, Square processed an impressive $59.9 billion in gross payment volume during the third quarter. Despite these numbers, Block remains relatively small compared to the total transaction volume in the payment sector, which amounts to around $6.5 trillion quarterly.

Investing in Bitcoin

Jack Dorsey, Block's co-founder and CEO, has openly expressed his strong belief in the future of Bitcoin, the leading cryptocurrency. In 2021, he stated, "I don't think there is anything more important in my lifetime to work on." This conviction has led Block to focus on several Bitcoin-related projects, including the development of a hardware wallet, mining equipment, and various innovative payment methods to promote Bitcoin adoption.

As of the end of September, Block had approximately $530 million worth of Bitcoin on its balance sheet, with its first purchase occurring back in 2020. Critics may argue that this focus on Bitcoin detracts from Block's core business functions. However, proponents believe that embracing Bitcoin aligns with Block's mission of enhancing financial freedom and economic empowerment. If Bitcoin's price continues to rise and Block successfully launches new products related to this cryptocurrency, it could bolster the overall business further.

Investing in Block Stock

Block stands as a promising company with two growing ecosystems that are increasingly valuable to its users. Encouragingly, the company is beginning to see its profits grow, largely due to ongoing efficiency improvements instituted by its leadership. In 2024, Block is projected to generate about $1.6 billion in adjusted operating income, marking a substantial increase of 344% from the previous year.

As optimism builds around the company, Block's stock price surged by 24% in November alone. Even after recent gains, the stock is currently trading at a reasonable price-to-sales ratio of under 2.4, which is significantly lower than its average valuation over the past five years. Given its positive trajectory, there is a strong belief that Block's stock could outperform the broader S&P 500 by the end of 2029.

Block, Bitcoin, Investment